Mass. Unionists Accused in Case of Mutual Fund Fraud

On Oct. 28, Mass. Secy. of the Commonwealth William F. Galvin accused 28 members of a Mass. union of defrauding their fellow members in the union’s 401(k) mutual fund.  The charges were laid out in a complaint filed with the Mass. Securities Division against Putnam Investment Mgmt., Inc., headquartered in Mass.  Curiously, the U.S. Dept. of Labor’s web site shows no record that the union involved, Intl. Bhd. of Boilermakers Local Lodge 5, has recently filed the financial disclosure form required by federal law.


Putnam managed the retirement plan for members of Local 5, which centered on Putnam’s Intl. Voyager Fund.  Mutual fund values are set daily at 4:00 pm EST.  But because some foreign markets close earlier, the 4:00 estimate may not reflect the most current value of intl. funds.  Mutual funds are intended to be held onto for the long-term accumulation of value.  But some investors engage in “market-timing” of intl. funds to maximize their daily profits, by buying or selling fund shares on the basis of either good or bad news, from which investors could predict an increase or decrease in the fund’s estimated value the next day.


The transfer of wealth from long-term shareholders to “market timers” costs those planning for their retirement over $4 billion a year.  And in its prospectus for the Voyager fund, Putnam banned market timing of the fund’s shares.  But in March 2000, Putnam executives became aware that members of the union had been market timing since at least Jan. of that year.  A company email in Dec. 2002 indicated that the market-timing represented 20% of the Voyager fund’s assets.  Since Sept. 2001, Putnam service representatives referred to the hr. between 3 and 4 pm as “Boilermaker Hour.”


According to the Commonwealth’s complaint, Putnam executives stopped the Boilermakers’ short-term trading only after the Mass. Securities Division sent its first subpoena to the investment firm this past Sept.  In his complaint, Secy. Galvin asked the securities div. to force Putnam to return any illegal profits back to long-term shareholders, and to pay a fine for its alleged violations of Mass. Securities law.  The complaint can be accessed on the internet at